If you’re looking to get a car on finance, there may be a number of reasons why it’s the right choice for you. Car finance allows you to spread the cost of owning your next car into affordable monthly payments. Both new and used cars can cost thousands of pounds to buy outright and most drivers don’t have this kind of money to get a car with cash. The popularity of car finance has grown thanks to the ability to manage your payments and get a newer, better car for your budget. However, choosing the wrong finance deal or not doing your research can make your deal more expensive than it needs to be. If this sounds like you, the guide below has been created to help you consider the ways in which you can get the best possible car finance deal for your circumstances and help reduce your payments.
1. Improve your credit score
Your credit score is really important when it comes getting any form of finance or credit. Lenders use your credit report to see how you’ve handled credit in the past and your score is based on a number of factors. However, the most common factors are whether you’ve made your payments on time and in full and if you’ve built a credit history. If you have a low credit score, you are seen as more of a risk to lenders, and it may put them off. The best finance rates and lowest interest rates are reserved for those with better credit scores, and they are less likely to default on their loans. It can be a good idea to take the time to increase your credit score before you start applying.
2. Shop around for the best agreement
When it comes to getting a car on finance, you may be wondering which form of finance is right for you. The most popular car finance deals tend to be a hire purchase agreement or a personal contract purchase deal. Both have a different structure and can be better suited to some people over others. It’s worth exploring each in more detail before you commit to one form of finance. Hire purchase us a form of secured loan which means the lender owns the car until the final payment has been made and can be more accessible for those with bad credit as the lender can use the car as collateral if you fail to repay. PCP on the other hand could see higher interest rates for those with bad credit but can be beneficial for people wanting lower monthly payments and more flexibility from their car finance deal.
3. Use a car finance broker
Many drivers think the best way to sort your finance is by heading straight to the dealer. It can be easy to see the car you like and then apply for finance within the dealership, but you could get a better rate by using a car finance broker. Car finance brokers work on your behalf and have access to multiple finance lenders. They help match you with the most suitable one for your own personal circumstances and help get you the lowest rates. Many car finance brokers don’t charge a fee and instead earn a commission from the lender, so it’s doesn’t cost you a penny. You can then use your car finance deal at a reputable dealer across the UK and get a car within your budget.
4. Save for a larger deposit
Car finance agreements like hire purchase can benefit from lower monthly payments if you have a deposit to put down at the start of the agreement. Whilst there are many no deposit car finance deals with affordable payments to choose from, it can be better if you put down a larger deposit. A bigger deposit reduces how much you are borrowing from a lender and helps to make your loan amount smaller. A smaller loan amount can have lower monthly payments and also be quicker to pay back.
5. Choose a shorter term
When you apply for car finance, you will be asked how much you can afford each month and how long you want to pay it over. This can reflect how much you can afford to borrow. If you want to get an idea of how much your loan amount may be, you can use a free car finance calculator to get an idea of how much you could borrow. When using a car finance calculator, you may notice that the longer you take your loan over, the lower your monthly payments will be. However, this can usually increase the amount of interest you need to pay as it means you are borrowing money from the lender for longer. You should try to take your car finance over the shorted term possible to stop your car finance agreement from being more expensive than it needs to be.